Barney & Fannie

Perhaps because Barney Frank is my congressman, I took a special interest in this interview of Gretchen Morgenson, New York Times reporter and coauthor of Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon:

DAVIES: What's fascinating about this story is that you have this entity [Fannie Mae], which you said became the largest and most powerful financial organization in the world, you had this entity, which has government guarantees and government subsidies, although perhaps indirect, but it engages in major political contributions and lobbying expenses. How big a player were they in terms of contributing to politicians and lobbying?

Ms. MORGENSON: They were very large. The numbers might not seem large in today's terms, but they were extremely shrewd and, you know, took great care, especially of the congressmen that were on the House Financial Services Committee and the senators on the Banking Committee.

They knew that these were very important people to their livelihood and to maintaining the government perquisites as they were.

One of the really big beneficiaries, albeit indirectly, was Congressman Barney Frank of Massachusetts. Back in 1991, when Congress was writing the legislation that would, you know, enhance or improve the oversight of Fannie Mae, or so they thought, Frank actually called up the company and asked them to hire his companion, who had just gotten an MBA from the Amos Tuck School of Business.

Of course the company was happy to provide a job for his companion and rolled out the red carpet in a series of interviews with a variety of executives, and it ultimately did hire the man. And he stayed there for I believe seven years.

So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.

But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.

DAVIES: Right, and you write there were a number of occasions on which he defended Fannie and their record of promoting home ownership but in the end had a different view of the company, right?

Ms. MORGENSON: Well, after the taxpayers had to take it over, he, you know, came around, finally. But by then it was too late. He said: Well, we should shut them down. But, you know, it really was far too late, and he had been such a vocal supporter for so long that it was sort of an odd turnabout.